An Interesting proposal of the Finance Bill…The Upcoming “PDMA”

The Reserve Bank of India has been performing the role of regulating the money markets, commercial papers and corporate bond. RBI thus had to perform multiple roles to fight inflation, regulate banks and raise funds for the GOI whenever required by auctioning Govt Securities. With the new finance bill proposed by the finance minister, the RBI is going to be more focused on its core roles of fighting inflation and regulating banks only.

Finance Bill 2015 has proposed that the RBI will now only regulate the repurchase and reverse repurchase rates for money, commercial papers and corporate bonds, and likely to lose powers to regulate repo and reverse repo rates on Gsecs (state and central govt securities). It will as well lose the powers to issue and regulate GSecs. This step is a big leap towards making the RBI independent in its working and focusing more towards its core responsibilities.

Instead of RBI, the finance bill has proposed to set up Public Debt Management Agency (PDMA)  for issuing Gsecs. Regulating the Gsecs will shift to SEBI (Securities Exchange Board of India). The proposed bill will amend the sections 45W and 45U of the RBI Act. Amendments will change the definition of securities and will tweak the definition of repo and reverse repo and its applicability. The word securities is likely to be dropped from the section. Subsequently, securities will only pertain to central and state government securities.

As soon as the finance bill is passed, the RBI act will be amended for the same. Although in practice, formation of the PDMA will take at least 18 months and also the transfer of responsibilities from RBI to SEBI would take some time. It might take time but seems to be a good proposal to enable RBI to function independently. Transparency and regulation of the Gsecs still remains a big challenge for the upcoming PDMA and the acting in charge for now, SEBI.

Thank you.

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Akshay Baregar

A hardcore analyst who loves to read about finance, upcoming concepts, ​and their applicability. Have always wanted to become an analyst and been thinking like one from the recent past. This is my attempt to write and make the world around me aware of the financial happenings and the likely impacts/ effects on the Indian/Global Economy. My favourite topics are monetary policies, fiscal reforms, market movements, predictions, wealth management etc . Hoping for an excellent response and feedback from the readers.

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